An alternative vision for Australia – Building our nation

Author: Bill Shorten is National Secretary of the Australian Workers Union

Introduction

Thank you Barry (Jones). Welcome ladies and gentlemen, officers and members of the Fabian Society and ACT Young Labor. It’s great to be part of the debate here in our national capital about our national future especially with the younger people who will be part of it. It is important I think that the ALP takes the lead in being the Party of generational change in Australian politics.

Tonight I will talk about some of the major public policy issues determining our future as a nation. In particular, that is economic policy, at a time when according to most signals the economy is cracking. I think we’ve all realised the folly of the idea around in some quarters before the last federal election that Labor, as the Opposition should stay away from the economy because it was the Government’s strong point. National economic policy is of course always fundamental to Australians’ living standards and voting intentions so should always be at the top of our public agenda. Bob Hawke was right, and is still right – if you can’t understand economics and communicate about it intelligently, then you’re not in the game. It’s like saying “let’s play cricket, but without the bat.” Tonight I will touch on the areas of tax, health, education and regional development.

But first, let me just say how affronted I felt this morning listening to the radio about the Federal Government’s latest policy initiative – that is, cutting Medicare funding for IVF patients. It is just so small-minded and punitive, considering the demographic pressures of our aging population, to hit desperate couples with this kind of primitive cost cutting, which in the long run may not even save a cent. Coming on the back the Medicare Safety Net lies and nearly eight per cent hike in private health insurance premiums, the IVF cutback is just one more chapter in an increasingly dangerous story.

The duplicity of the federal government’s whole performance since the last election is symptomatic of a much larger failure of national leadership. The billion dollar deceptions about interest rates and Medicare rebates and health insurance premiums betray a vacuum in comprehensive and integrated policy making. The recent collapse in productivity and economic growth, diving share markets, exploding trade deficit and record household debt are signposts to an insecure future for many Australians. Recent surveys of consumer sentiment and business sales, profit and investment expectations confirm the trend.

There is a convergence of expert opinion on the sources of our problems: lack of skills training and research and development, over-reliance on household debt, insufficient and out-dated infrastructure, poor incentives for low-paid work – made worse by pressures from our ageing population.

Considered in this context, it is clear that the Howard Government’s big-ticket policy agenda for its fourth term – industrial relations – is just a political distraction. The government’s plan to cut working conditions, freeze minimum wages and ban unions from organising will do nothing to solve our fundamental economic problems. There is simply no excuse except political expediency for legislation that will radically restrict people’s basic democratic rights to collectively bargain for better wages and conditions. This is just putting the Liberal’s ideology first, and Australians second.

The Economy

Now the last thing I want is for the economy to crack. Nobody wants to see the overriding impact that would have on the everyday lives of millions of Australians. As trade unionists, my workmates and I have a vital interest in economic growth and its consequences for the employment of our members. Most days we are involved in working in the real economy to help set the wages and conditions that are compatible with business growth in a competitive and increasingly international trading environment.

But many of the signs are there. The latest Australian Bureau of Statistics figures showed that in the wake of a deteriorating trade balance, in the December quarter 2004, Australia’s current account deficit was $15.2 billion (up 6 per cent on the previous quarter) or 6.4 per cent of GDP pushing net foreign debt (up by $15 billion to $422 billion) to record levels. A part from a small improvement in the June Quarter 2004, the current account deficit has worsened consecutively in every quarter since the March quarter 2002. The trade balance continues to deteriorate sharply. In January, the goods and services trade deficit blew out further to $2.7 billion, the second-highest level on record – so no turnaround soon in Australia ’s current account performance. Declining export volumes at a time of surging imports – including in manufacturing - is rekindling warnings of a banana republic.

The OECD has noted in its latest Economic Survey of Australia that skills shortages and reduction in the relative size of the working age population because of Australia ’s aging population will add increasing pressure on growth in per capita incomes in the coming decade. In fact, the OECD observe that, Australia has only just returned to the position it already held in the 1970s and remains well below leading countries in terms of labour participation and productivity.

In order to progress up the league table, there is a need to return to a vision of reform that started under Labor in the 1980s which was based on long-term structural reforms and a competition culture and stable macroeconomic policies that were both transparent and accountable.

In the last four years vacancies in traditional trades in Australia have increased by 86%, with acute shortages in chefs, construction, metal, wood, electrical and electronics. At the same time the number of cancellations or withdrawals from apprenticeships has risen by 60% -- up to 135,200 in 2004. Poor wages especially in the early years of traditional apprenticeships and a lack of support for employers are major drivers of such a high drop-out rate. Data released last year by the ACTU forecast that the skills shortage could cost the Australian economy around $735 million a year in lost output or up to $9 billion over the next 10 years.

The Business Council of Australia last week called for an urgent new approach to Australia ’s infrastructure problems, warning the problem was the single biggest barrier to the nation’s future prosperity. A recent study by the Australian Council for Infrastructure Development estimated there had been a $25 billion under-investment in everything from roads to sewerage and drainage in recent years. A BCA study estimated that fixing export bottlenecks as well as water, energy, road and rail transport services could mean an extra $16 billion increase in economic growth per year. And Queensland University academic John Quiggin has recently pointed out a major infrastructure shortfall - in education – and I will return to that theme shortly.

So we have real fundamental problems undermining our economic opportunities. There is something seriously wrong when health insurance costs are increasing by nearly eight per cent when overall inflation is 2.5 per cent, when our relative education costs are one of the most expensive in the developed world, when our tax system is unstable. The market can be relied on to deliver better outcomes in many circumstances. But there are systemic economic failures and imbalances that markets cannot fix. I want to put forward a few ideas as examples what a federal government policy makers could be considering - instead of punishing childless couples.

Tax

The Government should know that it’s created a monster when even its friends are calling for radical surgery, if not the death penalty. So it is with Costello’s rotten tax system. We should put it out if its misery, and so end the financial misery it’s foisting on so many Australians.

I don’t always agree with Malcolm Turnbull, but we should give him his due for highlighting the special injustice of the current tax system in giving breaks to the better off (like Malcolm) while hitting the worse-off hardest.

A large gap between the top personal income tax rate and the company tax rate creates an incentive to redefine personal income as company income. In addition, the maximum marginal income tax rate cuts in at a relatively low-income level, which harms work incentives and skill acquisition. Effective marginal tax rates also remain high for low-income earners, deterring participation by secondary earners and older workers.

In effect we have two tax systems – one for most people with marginal income rates of up to 47% plus the 1.5% Medicare levy, superannuation taxes and, if your family is in higher education, HECS. Not to mention the 10% GST on top of that. And we know that many Family Payment and welfare recipients can face effective marginal tax rates of around 60% if they try to do some extra work – with the absurdity of rates in excess of 100% in some cases – an actual negative incentive to work precisely affecting the people most needed to participate more in the labour market - that is, mature age Australians and parents of younger children. Meanwhile, higher income earners are availing themselves of negative gearing, company and family trust arrangements, and the endless variety of new avoidance schemes.

Peter Costello will blame everyone but himself, but he cannot get away from the fact that his GST has been a tax fraud. Workers are paying more tax than ever, despite the pilfering of the LAW tax cuts to compensate for bracket creep.

The Government has not delivered the lower marginal income rates envisaged in Keating’s and Hewson’s earlier GST proposals. While the GST continues to grow, there is no indexation of the income rates. The Costello solution to return some more bracket creep to higher earners fails to address the injustices and distortions across the whole system. Their other proposals are to skimp on the GST deal with the States and to punish welfare recipients into any sort of work by threatening their benefits – hardly a recipe for the high productivity, high skill labour market that people want and our country needs for sustained growth.

As a union, the AWU is doing what it can for members to combat the worst impacts of this rotten tax system by negotiating higher wages, but radical surgery is required. Through enterprise bargaining, we are also breaking the superannuation contributions above the minimum 9% guarantee ceiling – most recently just last month to set a new level for the civil construction industry with an 11% agreement on the Eastlink project in Melbourne. But the real solution to a rotten tax system cannot be achieved without income tax relief.

Regional Australia and Infrastructure Development

I am proud that being involved with the union has taught me, a city boy about the economy from a much broader perspective than the view from Sydney, Melbourne and Brisbane. You see how much of our GDP is created outside the urban centres when you’re at the bauxite and other mines in remote WA or Queensland , or on gas and oil rigs in Bass Strait , or on the rich farming areas of the Murray River system on the Victoria/New South Wales border. You also see how important it is to build in environmental sustainability for our future growth, as well as how the lack of infrastructure is the real brake on so much regional development. Here I’ll ev en agree with Chris Corrigan and Everald Compton in supporting their plans for a new regional Melbourne-Brisbane rail link to bring new transport access to western New South Wales in particular.

The Australian Workers’ Union has long and enduring interests in building up our regions and small towns. The National Party is no advocate for rural and regional Australia , despite the presence there of so many marginal seats. Country Australia needs new champions in public policy – to save small towns from dying and to build strong economic futures for our regional centres. We need to protect and restore the environment, increase our regional populations and build high value trading opportunities.

Australia faces critical choices in urban and regional development. Without proper policy planning, Sydney, Melbourne and Brisbane could grow unchecked into three Mexico City-style conglomerates, while country towns continue to die off. Or else we could work towards a more European model of regional development, with growing regional centres spreading the population across the nation.

A comprehensive population policy based on an increased annual immigration program of at least 200,000 migrants annually should be integral to regional growth. New employment opportunities from major infrastructure developments will be essential to attract migrants from both overseas and interstate to regional Australia . Increased immigration - targeted to the needs of the domestic labour market – will also reduce the economic costs of our aging population. The success of many recent asylum seekers in becoming productive members of our regional communities shows the potential for expanding the humanitarian migrant intake as well as the skills-based program, under which the bulk of new immigrants should continue to settle.

I stress that the key to growing our regions will be the availability of jobs and services based on essential physical and social infrastructure development.

Health

Reforming our tax system goes hand in hand with rebuilding public health funding for the future. The current private health insurance rebate system is effectively a subsidy to the rich, because the less well off simply cannot afford it. Last month the Howard Government approved an average annual increase of 7.96 per cent in private health insurance premiums, bringing increases over the last four years to 30 per cent. Howard’s latest health hike will push average costs up to around $250 a month for a family or $50 for a young single person.

These increases are simply unsustainable for both consumers and taxpayers who subsidise 30 per cent of private health insurance premiums through the private health insurance rebate. It also means that the various measures and incentives which have been implemented by the Government such as the 30 per cent rebate and lifetime cover have failed to keep a lid on premium increases. In the face of these increases in premiums, and reductions in coverage by private health insurers, the Australian Consumers’ Association has called on consumers to consider whether they need private health insurance.

Apart from the diversion of billions of dollars each year that could be spent on public hospitals, health professional training or innovative aged care etc, the current private system is incredibly inefficient. An estimated 10% to 14% goes into administration costs – a bonanza for the multinational insurance companies that make the industry super funds’ 0.2% administration costs look minuscule by comparison. As costs rise year after year, despite Government promises of falling premiums, more and more people will drop out of private insurance as they learn the hard way that it’s just not worth it.

The ALP has to make some tough decisions about health insurance as it did with superannuation. There is no escape from the exponential increase in health costs due to the ageing of our population and the application of new medical technologies. As reported by the OECD, across Australian health and aged care services, average annual expenditures per person on those aged 65 and over are around 4 times of those under 65 and rise between 6 and 9 times of that for the oldest groups.

The Labor Party has got to draw the line. We need a new Medicare model, based on our fundamental principals of universal and affordable public health services based on medical need. If some of the billions of dollars that are now going to insurance companies were instead invested in health savings, we could cut out the exorbitant administration costs and hedge against the rising costs in the future. There are better models. But these require working constructively on tackling the growing health challenge and not just cost shifting between the Commonwealth and the States. Adequately funded public health and aged care services requires closer coordination between State and Federal Governments and an overhaul of State funding arrangements.

Education

I think now that the skills shortage, lack of investment in research and development and the Government’s failure to support industry innovationare contributing to the rocketing current account deficit, people may look more kindly on the ALP’s Knowledge Nation program from the 2001 federal election. The spaghetti and meatballs was a bit abstruse, but the point is that Kim Beazley and Barry Jones were on the right track for Australia ’s long-term interest. That we were defeated by short-term political manoeuvring has not turned out well for the Australian people.

Barry Jones has made a great contribution to our education debate by having both the long-term vision for Australia in the global economy, as well as the attention to national policy detail. Plenty of people hopped into Barry about Knowledge Nation, but the fact is he was so right in so many ways. I’ve always been an admirer of Barry’s – and not just because he knew the name of Hannibal ’s elephant. Barry deserves to be acknowledged for his thankless work for the national good. There were problems with Knowledge Nation in the way it did not translate as immediately rel evan t to enough voters. But our current circumstances, with the skills shortage and ever increasing costs for education – not just at university but also at schools – makes our education agenda far more rel evan t

For me, being a ‘knowledge nation’ means being a global education resource, as well making top-quality education accessible to all Australians. As a nation, we should aspire to a world-class education system, with the best teachers anywhere and with an expanding number of quality campuses and available courses and positions. We want to be a place that the world comes to for education, like Harvard or Cambridge . We should be the country that smart kids from Asia want to come to for university. Why shouldn’t we want the middle classes of Asia to send their kids to Australia to learn?

Specifically, why not invite an additional 50,000 overseas students into Australian higher education annually? Increasing the level of foreign students in Australia could have flow on benefits for the Australian economy. Graduates who return to their home country and are familiar with Australia are more likely to want to do business with Australia and Australian companies, or seek investment opportunities here. Australia will not only enjoy short-term economic benefits, but also develop long-term strategic international ties with well-educated foreigners.

We are pricing our education too high for our young people. Obviously we’ve got to fix the excessive cost of many university degrees. It’s not often appreciated that higher education costs cause wage inflation. The more expensive education is, the higher wages graduates will demand in order to compensate for that cost. Top law graduates in the US , having spent up to US$200,000 on their education, are demanding US$130,000 in first year salaries. So businesses should support lower HECS fees unless they want to pay more in labour and staff costs.

We can also make more efficient use of our university infrastructure. Average courses running only 24 weeks a year gives us an opportunity to operate campuses for 48 weeks a year – to deliver an efficient doubling of education time with virtually no extra capital infrastructure costs. I stress here that we must also invest in more lecturers and university teaching resources so as not to create an academic “production line.” We should also consider 'fast track' university degrees, for example allowing ambitious students to complete a four-year degree in half the time. This could increase income tax revenue, decrease government assistance and reduce the opportunity cost of university study.

An expanded TAFE stream should be an integral part of the education system, not its’ poor cousin. Again, that means more teachers and more students, including an emphasis on overcoming and preventing existing and future skills shortages.

The long-term costs to Australia will be great if we fail to invest in our people’s education and training and in our social infrastructure of schools, universities and TAFES. Like health and aged care, a cooperative model is required between the Commonwealth and States to adequately fund education and training in order to invest in our future.The private sector will have to share the costs. Employers have a responsibility to invest in training, and should be encouraged whether through new incentives or through the tax system. The OECD has called on the Government to give higher policy priority to training and up-skilling of workers already in work [Economic Survey of Australia, OECD 2004].

One anomaly in the tax/education system that we can certainly do without is the provision allowing people to claim a tax deduction for training that will improve their skills in their current job, but not for education costs designed to get a new job. This is contrary to the idea that workers will probably have to reskill a couple of times during their lives. Surely the deduction should be available for legitimate employment training for future work.

Let me add here that the ALP should dump forever the idea of financially punishing a few rich private schools. However popular the plan might seem from a few opinion polls, it is simply a symbolic distraction from the real issues. Building a knowledge-based economy and society is about billions of dollars, not the millions to be picked off some private schools. The State Aid furore died in the 1970s and should stay dead. I’m sure that Bob Hawke would have thrown out this silly idea in a few seconds.

Conclusion

It is a truism of Australian history that the Labor party is the only political party capable of biting the bullet on long-term policies in the national interest. Early last century the ALP led the world in making Australia a uniquely democratic and egalitarian State; after World War II the ALP built an industrialised economy based on mass migration; then in the 1980s and ‘90s Labor opened up the economy to the world in time to lock in years of sustained national growth.

It is time for us to start making our own history again. Our economic priorities demand a fair tax system with real incentives for working people, a public health system based on medical need, and a world-class education system available for all, from children to older Australians. These priorities fit with our broader vision for an Australian Republic , with vibrant and growing regions linked into the world economy - a nation that respects its Indigenous people through a lawful treaty and that treats international refugees with humanity.

So the next time you hear John Howard or Peter Costello of Kevin Andrews talking about freezing minimum wages, banning union organisers from visiting workplaces or outlawing collective bargaining activity, just think how rel evan t those changes are to building the future of our nation. The Coalition’s industrial relations agenda is a narrow-minded, short-term political attack on organised labour, which will add to the financial and personal pressure on many working people and their families. Not one piece of evidence has been put forward that demonstrate how the Liberals’ workplace changes will help secure our future economic prosperity: that is a lot to ask for laws that will undermine the historic egalitarianism of our society.

Australians know about their iconic heroes - from James Cook or Benelong through to Ned Kelly, General Monash and Kathy Freeman. But there is still something lacking in our sense of national celebration – partly perhaps a laconic scepticism of demonstrative patriotism, or partly our relative historical immaturity compared to our European and American allies.

We look forward to a time when Australia Day really is a proud national holiday, resonant with the common values that have united our society for two centuries – a democratic sense of fairness and opportunity for all, justice for the disadvantaged and the overcoming of failure through collective struggle. Only Labor can build the future that Australians deserve. It is our task to deliver that change.